The following discussion studies the value proposition of the Software as a Service (SaaS) business and licensing model. Additionally we’ll look at the sales, marketing and cultural and operational challenges it presents for corporations looking to deploy such a model.
Part I in this series evaluated the Value Proposition, or “what makes this business model interesting to the customer”. You may find that introduction will help as an introduction to this one. Additionally in Part II we examined the specific SaaS Revenue Model and Operating Expenses.
This section, considers the cultural, Technical, Sales and Customer Facing challenges identified to successfully execute an SaaS business Model. As before, the ISV model is contrasted to highlight these challenges.
Cultural Barriers
As has been illustrated in earlier sections, the software as a service model is philosophically different than traditional ISVs models including a redefinition of the relationship between vendor, customer, and third-party service providers, a different value proposition, and changing roles for ongoing delivery. In fundamental contradiction to traditional ISVs, the SaaS firm becomes a service-based relationship rather than a technology enabler.
Technical Hurdles
To prosper in a multi-tenant delivery model, SaaS firms utilize purely Web-native applications that are based on a single instance of an application rather than multiple instances supported across different delivery environments (client/server, mainframe, Web-based) with traditional ISV models. This is not an insurmountable undertaking by an established ISV, but requires a commitment to Web-based delivery. Additionally, technical development becomes much more adaptive, as SaaS firms provide continuous updates on a weekly, monthly, or quarterly basis rather than major upgrades every several years.
Sales & Partnership Conflicts
With ISV sales teams earning commissions on large upfront licenses rather than earning over the term of the agreement, re-aligning proper sales incentives & cultures is perhaps the largest impediment that ISVs face in successfully making a quick transition. Sales teams are rewarded based on the customer’s usage of the system over time rather than being based on upfront license fees.
The lack of large implementation professional services opportunities poses special challenges for SaaS firms seeking to draw on partnerships and alliances with top-tier consulting firms that thrive on providing these types of upfront services.
Customer Service, Application Support & Management & Network Operations
We have already made passing reference to the implications of convergence between software and services. As this process occurs, several challenges arise. Customer service and technical engineering become intertwined as the company relies on customer feedback and user adoption trends in the refinement of its solutions. Administrative issues surrounding customer support, account management, and application support become ongoing rather than one-time processes, and essentially become the lifeblood of the SaaS provider in building long-term client relationships. Additionally, network operations take on an additional role and are viewed as essential contributors and a hub for customer service & ongoing support.
Thank you for reading along. I hope this article provides some value to your current or next SaaS venture.
I’m looking forward to you thoughts in the comments.